Wednesday, October 25, 2006

$450 Billion Held Abroad

This release from the Fed has some interesting figures about the amount of dollar bills floating around outside the country. Total currency issued is reported to be $760 Billion. That means that about 60% of our printed currency is outside the country. Wow.

“ 'An efficient payment system and healthy economy require a sound currency,' said Federal Reserve Vice Chairman Donald L. Kohn. 'The Federal Reserve recognizes that the dollar is widely used outside the United States, and is deeply committed to preserving its integrity.' ”

5-year dollar/euro
Witness the dollar's "strength" over the past five years.
[Thanks to Yahoo Finance for this chart.]

Interesting that the Fed issued this statement concurrently with their FOMC statement keeping the target Fed rate at 5.25%. It's probably a coincidence, but I see these two statements as contradictory. On the one hand, the Fed champions a strong dollar, and on the other, the Fed states that the dollar takes a back seat to the world's perception of a strong American economy. Is this just another case of left and right hands not talking again? Or would it be more accurate to bring up the two-sides-of-the-mouth metaphor?

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